In the first part of this article, I discussed two lessons that companies of all sizes can learn from the recent set back that JC Penney has experienced in its turnaround under the short tenure of its former CEO Ron Johnson who had been co-creator of Apple’s retail stores. The lessons are: Industry expertise counts but experience is critical and The First 100 Days are the game changer.
I would like to turn now to one more key lesson from JC Penney’s experience:
Lesson # 3 – Never Underestimate the Competition.
Retailers, like all companies, are highly competitive within their industry segment. They spend millions on brand building, product development, customer acquisition and store expansion. They work closely with suppliers to develop and market exclusive products under their brand or that of the supplier. They will fiercely protect those products and that exclusivity.
While competition is what keeps the innovative juices going, the perception of infringement and disloyalty brings out the knives. Macys spent years and millions to develop the Martha Stewart brand within their stores across multiple categories of home furnishings. Early in his JC Penney tenure, Ron Johnson stepped in with a deal Martha Stewart could not refuse. It called for a $38.5 million investment in her company for a 16.6% share and the opening of mini-Martha Stewart stores in JC Penney locations. Whether that deal infringed on the exclusive agreement Martha Stewart had with Macys is for the court to decide. The fact is that Macy’s, a larger competitor who had spent millions building the brand, responded viscerally to the upstart rival it saw as trying to capitalize on that brand building . The result is millions in legal fees, product tied up in warehouses, bad publicity and a CEO mired in legal issues rather than focused on the business. This was the final straw for Ron Johnson. The JC Penney board had little further choice but to remove him as CEO.
Could a product deal have been done with Martha Stewart without the ramifications of what occurred? Probably. An experienced CEO would have handled this quite differently. No fanfare, no publicity, extreme attention to deal points and a laser-like focus on insuring that all new product would be unique whether by color or styling before going into market. Further, communication between the supplier and their customer is always critical. Had there been an insistence that Martha Stewart also inform Macys of her plans with JC Penney, much of this could have likely been prevented.
In summary, a turnaround situation creates a unique and difficult set of issues to be overcome in order to first stabilize a company. The CEO taking on this challenge must not only have strong industry expertise but must have experience as a CEO and a deep understanding of the first priority of building and preserving cash. The first 100 days in the CEO’s tenure requires a sightseeing and listening tour of all operations, sites, management, investors, employees, suppliers and customers. In a middle market company, a new CEO must first meet with management and employees at all company sites. It is crucial to meet with at least the top 10 customers and suppliers. When complete, meetings with all capital providers as well as board members to review results and discuss initial plan development must be undertaken.
A Final Word About Suppliers
Keep your key suppliers close and communicate constantly with them. They are your eyes and ears with regard to the marketplace and the competition. They are there to help you differentiate product rather than copy it. They are your partners in creating new and innovative products. Treat them as the vital partners they are and together you will enhance top line growth as well as economic value.
The story of Ron Johnson’s turbulent tenure with JC Penney has lessons for any CEO attempting to turn around a middle market company. A new CEO should leverage the increased power they have during a transition. They should assess resources, both people and technology, and make decisive changes where required. But they also have to find ways to add value immediately, while diagnosing the underlying causes of operating problems. They must tune into their organization to identify strengths they can leverage, while challenging people to commit to accelerated goals. They need to define quick hits and decide what not to do.
A CEO attempting a turnaround--whether a high profile executive or one operating far from the public eye--must find the right balance between respecting and stabilizing the organization and turning it in a new direction.
Helen’s career has focused on developing and executing strategies for business development and growth for leading retail and consumer companies. Learn more or contact Helen on her Newport partner page.
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